Area banks post 2Q profits; U.S. Bank down 76%

Three big banks that serve Minnesota reported earnings today and they provided mixed news about how they're doing in this economy.

Wells Fargo had record revenue and profits in the second quarter, largely due to its acquisition of the Wachovia bank. The San Francisco-based bank earned $2.6 billion, but the company said loan losses would continue in coming quarters as more consumers lost their jobs and can't make their payments.

TCF Bank reported its 57th consecutive quarter of profits, earning about $25 million. The bank said it's seeing strong growth in deposits and lending, but it's keeping reserves high to protect its financial condition against loans that could go bad.

Minneapolis-based U.S. Bank saw its second-quarter profits plunge 76 percent to about $220 million. But CEO Richard Davis wasn't entirely gloomy as he spoke to investors on a conference call this morning.

"We're not seeing all green shoots and we're not seeing the end of the road here," Davis said. "But we're starting to see in our portfolio a new repetitive improvement in overall performance of our credits. And over the course of time, I think we'll be one of the first to be at the top of that and get on the other side."

The plunge in U.S. Bank's earnings stemmed largely from the bank setting aside $1.4 billion to cover potential losses on loans. But Davis said he expects a slowdown in the number of loans going bad.

Despite the drop in earnings, U.S. Bank beat analysts' profit estimates, and the bank had record quarterly revenue.

Minnesota banks have had their troubles, as the economy has slipped into a deeper and deeper funk, but when it comes to banks here in Minnesota, some say that the public here doesn't have to worry.

"Big banks, small banks on average compared to the other banks in the country are doing OK," said Art Rolnick, director of research at the Federal Reserve Bank of Minneapolis. "U.S. Bank is in very good shape. I think they clearly will be one of the winners among the larger banks, because they're in position to take advantage of some fire sales out there. They've done very well."

Rolnick said that Wells Fargo has done OK as well and that TCF bank looks to me to be in pretty good shape.

Rolnick's fire sale remark means he thinks U.S. Bank could be buying some weakened banks at bargain prices.

Some analysts don't agree with Rolnick's assessment of Well Fargo. Wells is taking flack from some investors for not setting aside enough to money to cover possible loan losses.

Indeed, some analysts figure Wednesday's round of bank earnings announcements provided fresh evidence the nation's banks still face a tough road as loan losses, once concentrated in home mortgages, spread to commercial loans and credit cards. While some banks have reported big profits, analysts fear that may not be sustainable.

So is the worst of the banking industry's problems in the rear view mirror? Hard to tell, said economist Ed Lotterman. He said that's because the health of banks varies greatly.

"A lot of banks are healthy," Lotterman said. "But the largest ones all have problems of some degree of severity. And among the smaller ones, there are some with pretty deep problems."

Wall Street gave area bank stocks a mixed reaction Wednesday. TCF shares were down 2 percent, while Well Fargo was off by 4 percent. However, U.S. Bank shares rose 4 percent.

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